ATLANTA—Standing before thousands of financial aid professionals gathered to begin a weeklong conference hosted by Federal Student Aid (FSA) on Tuesday, Education Secretary Betsy DeVos announced that American higher education is in crisis, and that it’s largely due to the federal student loan program.

“Our higher ed system is the envy of the world, but if we, as a country, do not make important policy changes in the way we distribute, administer, and manage federal student loans, the program on which so many students rely will be in serious jeopardy,” DeVos said during the opening session of the annual FSA Training Conference.

She went on to say that since its inception, FSA has “outgrown its structure and its governance,” suggesting the federal government may be ill-equipped at present to manage the $1.5 trillion in outstanding federal student loans, particularly as many borrowers struggle to pay down their debt.

It took 42 years - 1965 until 2007 - for the student loan balance to grow to $500 billion.

It took only 6 years for the loan balance to double - to $1 trillion - in 2013.

DeVos attributed part of the growth to the move to direct lending in 2010, when the Obama administration ended the Federal Family Education Loan Program (FFELP). She also claimed increases in federal student aid have contributed to increases in tuition, fees, room and board—a contested theory known as the Bennett Hypothesis.

DeVos is throwing the move to direct lending under the bus. Listen, the government "monopoly" here is not the problem. FFEL was a HUGE problem. The maze doesn't work because of the ad hoc nature of the system. NOT the move to all DL lending. #FSATC2018

Centralizing student lending in the federal government has only made things more complicated for students and families, DeVos said.

“We know students are having poor experiences. With more than 30 variations of 10 different repayment plans, each with their own set of burdensome requirements, it’s no wonder this government maze doesn’t work,” DeVos said. “Students are taking out tens of thousands of dollars in debt but many are misinformed or uninformed as to the implications of taking on that debt and their responsibilities to pay it back.”

Betsy DeVos is speaking to us about student loan volume. $1.5 trillion loaned to date. Saying that we need to control this risk. I don’t disagree but funding more federal grants could make a big difference. #FSATC2018

As a way to improve communication and reduce complexity, DeVos said FSA will focus on financial literacy through its NextGen Financial Services Environment, in addition to modernizing the financial aid application process through initiatives like the myStudentAid mobile app.

Moving forward, DeVos said both the Department of Education (ED) and other policymakers should focus on four principles: supporting individual students through multiple pathways, promoting innovation, providing more accessible and comprehensive information, and the idea that “nothing is free.”

“Someone, somewhere ultimately pays the bills,” she said.

DeVos has been a proponent of supporting alternative pathways to higher education, such as apprenticeships and vocational programs. Earlier this year, ED also announced its intent to convene several new negotiated rulemaking committees focused on issues like accreditation, state authorization, access to high quality and innovative programs, and eligibility of faith-based entities and activities.

“Each of us has a contribution to make and a role to play in resolving our present crisis in higher education. I’m confident we can – and we will – rise to this challenge. Because Americans have never shied away from challenges,” DeVos said on Tuesday. “We live in some of the most exciting and opportunity-filled times ever. Let’s ensure our rising generations can seize each and every opportunity, and that the only thing that limits them is their imagination.”

NASFAA President Justin Draeger applauded DeVos for “highlighting a national issue that is affecting millions of students and families across the country."

“We agree with her assessment that it will take a joint effort between schools, students, lawmakers, federal agencies and others to reduce the negative impacts of over-borrowing,” he said in a statement. “The financial aid community stands ready to work with policymakers to find and implement solutions that will help help keep college affordable without burying families in debt that cannot be repaid.”

Publication Date: 11/28/2018

Armand R |
11/28/2018 2:28:05 PM

David, nickels and dimes add up. Public investment has to have a limit because government budgets are limited. Governments have to prioritize spending, and there are some services (e.g., Police, Fire Dept.) which take precedence over education. A fiscally responsible college wisely manages the taxpayer funds it receives from the government and makes any needed cuts, in the best interest of the student. An increase in tuition and fees of 596% in twenty years, above the 160.4% inflation rate over the same period, indicates that the education sector operates with the expectation that the government will pay regardless of the rate of increase. Higher education needs to fix itself financially from within and manage their funds more wisely.

Joel T |
11/28/2018 1:48:57 PM

James C., if I remember correctly the entire budget for the Department and its programs is around $71 billion. Therefore, downplaying an $8.7 billion expenditure from student loan interest "income" to support healthcare subsidies does not seem to be fair. If those funds were put back into the programs we could, in theory, see a 10% increase of funding for Pell, for example.

It seems as though people are complicit in using student debt to fund other government programs, and I'm not sure that is the best path forward. I felt that way in 2010 and I feel that way now.

All the being said, Secretary DeVos' statement this morning was not inaccurate. However, she would be well served to not play politics at a conference meant to be a positive, learning experience for all sides. She, in effect, poisons the well before we even have a chance to sit down.

David S |
11/28/2018 12:0:18 PM

Armand, you're right, we need to address the cost of higher ed, and I think that many of us have been involved in many discussions about this (although in general, financial aid professionals have no say in their school's cost whatsoever).

We can all cherry-pick individual things on campus that sound like enormous wastes of money, whether it's a sustainability project, or the president's salary, or a rock climbing wall or whatever. Truth is that none of these individual costs drive costs up that more...that's easy enough to figure out. I'm more concerned about the lack of public investment in higher ed. I once worked at a community college in a state where the funding model was supposed to be 1/3 each tuition revenue, state support, county support. Over time it wound up at over 70% tuition revenue because the public resources were slashed, often so that more tax cuts could go to people who didn't need them. I don't have data handy, but over the 30 year period you cite, I bet all 50 states' commitment to higher ed was cut drastically. And that's not something that colleges themselves can control.

Armand R |
11/28/2018 10:36:21 AM

The real issue, that few seem to seriously address, is the rate of increase in the cost of college. Between 1980 and 2010, college tuition increased 595% (compare that to medical costs increase of 241%).https://www.businessinsider.com/college-and-health-cost-versus-income-2011-3Colleges are spending money where they ought not to be spending, and students and taxpayers are paying the price. A 2015 report on sustainability by the National Association of Scholars estimates that one east coast college spends $3.76 million annually on their sustainability package.https://www.nas.org/projects/sustainability_reportColleges need to get back to their “raison d’etre”, especially when their costs are so out of control.

James C |
11/28/2018 9:49:10 AM

Joel T, a small part of the interest income was projected to go towards Obamacare:According to the CBO in 2013 the profits from student loans are divided as follows: $8.7 billion goes to pay for ObamaCare; $10.3 billion goes to pay down the federal debt; and $36 billion goes to Pell grants.

Joel T |
11/28/2018 9:43:15 AM

Congress passed the Health Care and Education Reconciliation Act of 2010 (HCERA), and the bill required that all student loans originated after July 1, 2010 be done via the direct lending program. At te time, this ws projected to generate savings of $62 billion over the next 10 years, according to the Congressional Budget Office. The Act also increased Pell Grants by $36 billion and expanded aid to colleges serving minorities...so you can see that the savings were not necessarily poured back into aid programs.

In forcing thousands of colleges to switch from FFELP lenders to direct lenders, there was an assumption that it would generate $40 billion in additional interest income over the next 10 years that could be used to fund subsidies as a part of what became known as "Obamacare".

So yes, there is a logical argument that the demise of the FFELP program was not because it was a bad concept or more burdensome on students. It centered around trying to 1) pull back from giving banks more subsidies after the 2008 recession and 2) finding funds/revenue to help cover healthcare subsidies.

Let's try to have honest conversations, folks. There are pros and cons to everything but we need to at least be honest about how we got to where we are. Some of the Secretay's comments are accurate, for the most part. However, I will say that I wish we could leave the politics out of the conference and talk about helping students and issues that need to be addressed.

I may be a dreamer, but I believe we agree on more than we disagree.

Jerry C |
11/28/2018 9:32:48 AM

I, and many around me, felt she gave a very political viewpoint. Audible groans in the hall with some of her statements,

James C |
11/28/2018 9:17:00 AM

Attendees should start boycotting her appearance at the FSA Conference.

David S |
11/28/2018 9:8:06 AM

"DeVos attributed part of the growth to the move to direct lending in 2010, when the Obama administration ended the Federal Family Education Loan Program (FFELP). She also claimed increases in federal student aid have contributed to increases in tuition, fees, room and board..."

Mrs. DeVos also attributed the rise in student loan borrowing to Obamacare! What she failed to mention is that this is the seventh straight year total student loan borrowing has decreased, and the average student loan indebtedness has also decreased. (College Board Trends in Student Aid 2018)

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